Netflix: Mailers Compliant with Postal Requirements

Online DVD rental pioneer Netflix Inc. said its return mailers are in compliance with U.S. Postal guidelines and is ready to implement changes if needed, according to a spokesperson.

Netflix received a jolt Dec. 5 when Citi Investment Research released a note suggesting the first-class two-way DVD return envelopes often jam the postal service's automated processing equipment and require manual processing.

The DVD by mail service ships about 1.6 million discs each day.

Netflix spokesperson Steve Swasey confirmed the company had received a report by the U.S. Postal Service Office of Inspector General that claimed 70% of the DVD mailers required manual processing over the past two years, resulting in $41.9 million in related labor costs.

The report predicted labor costs could top $61 million over the next two years and recommended the postal service develop new standards for processed first-class mail, including a 17 cents per envelope surcharge.

The Citi note said such a surcharge could negatively impact Netflix's operating income by 67%.

Swasey said the OIG report failed to recognize that Netflix saves the postal service about $100 million annually by picking up mailer shipments directly from the post office. “We pay full first-class postage both ways but we pick up the mail ourselves and they don't deliver it to us,” he said.

Swasey said it is unlikely Netflix would face surcharges as the mailers are currently in compliance and can be altered it needed. “If we have to change the mailer, we will change the mailer,” he said.